Billions needed to replace crude oil tanker fleet

• A third of all crude and other tankers are 15 years old or more
• Ratio of tankers on order to those in service at all-time low
• Several hundred ‘ghost’ tankers are shipping sanctioned countries’ oil

Hundreds of billions of dollars of investment is needed to replace ageing crude oil tankers and avert supply bottlenecks, according to the chairman of the Indian Oil Corporation.

Shrikant Madhav Vaidya said this week that an estimated annual $640 billion investment is needed to maintain current supplies and meet projected growing demand.

According to the latest report from the International Energy Agency, oil demand is set to rise to an unprecedented 102 million barrels per day by the end of the year, buoyed by the lifting of Covid restrictions in China.

However, around a third of all crude and other tankers currently in operation are 15 years old or older and in need of replacing.

“I think this is one area that needs to be highlighted and discussed. In a few years from now they will be retired,” Vaidya said this week at the 30th annual Middle East Petroleum & Gas conference in Dubai.

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The ratio of crude tanker capacity on order to those in service is now down to an all-time low of 2.5 percent, according to Clarksons Securities.

In terms of very large crude carriers (VLCCs), which are used across the Middle East, that number stands at 1.4 percent.

There will be 910 VLCCs of all ages operating globally by the end of this year. Niels Rasmussen, chief shipping analyst at Bimco, the world’s largest international shipping association, told AGBI that actual crude tanker supply is estimated to grow by 2.1 percent this year and 0.5 percent in 2024.

“The current new building order book for tankers is very small and many more ships must be ordered to just maintain the current size of the tanker fleet,” he said.

Rasmussen explained that impending restrictions, including limiting sailing speeds in order to comply with decarbonisation rules, are also hampering the sector.

Taking this into account, he said supply growth is expected to drop to 1.1 percent this year and 0.5 percent next year.

“Unlike most of the ships in the current order book, planning for the use of alternative low carbon fuels must be considered, otherwise the ships will likely be unable to meet the ever tighter decarbonisation regulations that the ships will face during their lifetime,” Rasmussen said.

The situation has been exacerbated by the proliferation of “dark tankers” taking to the seas since the Russian invasion of Ukraine, delaying the recycling of current ships and when replacement ships are built.

According to an article in the Financial Times in February this year, at least 16 vessels operating under the ‘ghost’ network – which previously allowed Iran to negate US sanctions – had begun transporting Russian oil over the previous two months, an increase from nine since the start of the conflict.

The expanding fleet of old tankers coming out of retirement pose significant dangers and often lack industry-standard insurance.

Ranjith Raja, head of EMEA oil and shipping research data and analytics at London Stock Exchange Group, said: “Several hundred tankers are being pulled into the ghost fleet for carrying oil from the sanctioned countries.

“Meanwhile, the order book of new ship deliveries is no match for the number of ships exiting from the mainstream trading routes.”